defining the right and remedies of the creditors in case of the debtor's inability to pay its debt, authorizing them through their trustee to take immediate possession and control of the mortgaged property and receive its income, and providing further for speedy foreclosure and sale. Where a great system of

railroads has been built up by contracts between independent companies, sometimes in the form of leases and sometimes of traffic agreements, whereby one corporation has surrendered to the other the entire control of its property and business in consideration of certain specified payments, the contracts have been carefully guarded, so that, upon a failure by the corporation in control to make these payments or to observe the stipulations of the agreement, the other should be able immediately to recover possession of its property. These contracts have been shown and their provisions carefully explained to investors when securities were offered to them for sale, and the reputation of the counsel employed has afforded them a guaranty that they could rely upon the rights thus apparently secured. It would be impossible for any lawyer in this body to draw instruments which were clearer or more carefully guarded than many of these agreements.

The last three years have shown us that these contracts cannot be enforced in the courts; that the rights which they are intended to secure are not recognized; and that, for all practical purposes, the creditor is at the mercy of the debtor and obliged to accept substantially such terms as the debtor chooses to offer. As matters now stand, counsel must advise their clients that they can draw no instrument of this character with the least assurance that its provisions will be respected. Let us see if this statement is not critically accurate.

When a great corporation fails, the catastrophe affects especially two classes of persons. One is a small body of men, the managers of the property, who have been charged with the conduct of its affairs, and who are in most cases responsible for the result. These men, though often to a limited extent owners, are, as managers, the agents of the owners. The other is a large body of security-holders, the real owners of the property, scattered all over the country, and often over Europe as well, who

have relied upon their contracts, who know nothing of the corporation's condition, nothing of each other, and who, confused by the disaster, are inevitably slow to act. Many of them are persons of small means, of little business experience, and naturally suspicious or timid. They are represented nominally by a trustee, either a trust company or some person often closely connected with the debtor corporation and friendly to its interests, but this trustee while clothed with authority is protected by the trust indenture, so that he is not compelled to act unless requested by a certain portion of the bondholders and amply secured against loss. Before the creditors, therefore, can act for the protection of their interests, there must be time for organization. The holders of the bonds must be discovered, representatives must be selected, funds must be provided, and the situation must be carefully studied.

The failure of the railroad company finds the managers united and fully prepared for the emergency which they inevitably have foreseen, while it finds the creditors scattered, ignorant, frightened and entirely unready to act. What has happened in practice? We have seen the managers, while stoutly denying up to the last moment that any such step was contemplated or that the property was in any way embarrassed, secretly prepare a bill in equity, and, without notice to anyone interested, file it in the courts of the United States, asking for the appointment of receivers.

These bills have not been brought by trustees to foreclose any mortgage, for no default has occurred. The plaintiffs have been persons claiming to be stockholders or bondholders of the railroads or some of them that compose the so-called "system,' which has been created and is held together by the contracts of the insolvent company. As a matter of fact, in every case the proceedings have been collusive. The managers of the insolvent company have controlled both sides of the litigation; the plaintiff and defendant have been in legal effect the same person, and that person the debtor company. The bills have alleged that this company is unable to meet its obligations and that there is therefore danger that parties will act upon their legal or equitable rights, that lessors and mortgagees will enter

for breach of condition, that railroads operated under traffic contracts will be claimed by their owners, and that thus the system will be disintegrated and the insolvent company suffer; in a word, that the contingency contemplated in mortgage, lease and traffic contract is about to occur, and that the parties propose to exercise the rights which by the express contract of the insolvent company are secured to them in that very event. Upon this allegation the plaintiffs ask the courts, in the interest of the debtor, to deprive the creditors of these rights, or at least to restrain the creditors from exercising them. In brief, the representatives of the debtor ask that, to preserve for it property to which confessedly it is not entitled, the creditors be deprived of that to which they are entitled. The receivership is not sought as incident to other relief, but is the ultimate object of the suit.

Surely this is hardly a prayer entitled to much consideration in a court of equity. No statute passed by Congress or any State legislature to accomplish this result would be sustained for a moment.

To disguise the naked effrontery of this position, the bills have generally alleged that the public interest will suffer from the disintegration of the system; but if the public interest did not prevent the making of the contracts, it should not prevent their enforcement, even if it were possible under the constitution for courts to take private rights for any such shadowy public use and without any compensation. Practically, however, it may be doubted if there is any foundation for this claim, which certainly has never been established after argument, for no opportunity to litigate it has been given. Where it is for the interest of every one concerned that the railroad should be run and made to earn as much as is possible, there is little danger that the public will suffer from an interruption of service. Connecting roads under different management are operated harmoniously all over the country, and there is no good reason why the same result should not follow even where the connecting roads were once united by a lease or traffic contract.

If, however, we were to admit what has never been decided after full argument, that such a suit can be maintained; if we

concede that the crisis makes some action by the court expedient; that, though the various parties are entitled to their rights, it is necessary that these should be asserted decently and in order, and so as to avoid the confusion which might follow the failure of the great corporation; what is the remedy proposed? The court is asked, for the protection of all concerned, to take the property into its charge and secure to every one his rights; and the method proposed is the appointment of receivers, not only of the insolvent corporation's property, but of property belonging to various other companies bound to it by contracts which it cannot perform.

The selection of these officers is a matter of the deepest concern to a great many persons. They are to be the trustees for the time being of many different and often conflicting interests, and bound to hold the scales with absolute justice between them. They are to be, in the graphic language of the decisions, the eyes, the ears, "the hands" of the court, and as absolutely without interest in any of the questions which will confront them as the court itself. They should be men of the highest character and ability and as impartial as the lot of humanity will permit.

There should not be in the choice of such officers any undue haste. A restraining order will hold everything until after notice and hearing, leaving the property meanwhile to be managed by its officers as before. A temporary receiver, if absolutely necessary, can be appointed like the marshal in bankruptcy cases, but there can be no reason why the creditors, who become by the debtor's failure the virtual owners of the property, should not be heard in the choice of their trustees. Every bankrupt and insolvent law that we have known has left the choice of assignees to the creditors, and the reason for this rule applies equally in the cases we are considering.

The salutary rule of equity has been that, whoever else was selected, the former managers of the property, the representatives of the debtor, must not be made receivers. In the case of a railroad company there is special reason for this, for these men are inevitably interested and have taken sides on the questions which they must determine. The men who have themselves

built up a great system, or have been identified in hope and feeling with those who have done so, naturally take pride in their work and oppose any step which looks towards its disintegration. Their own position in the railroad world depends on whether they control a system extending over thousands of miles, or a single railroad which is one link in a chain. They and their associates have perhaps lucrative positions which they do not wish to lose. They are in every way deeply interested parties. Having filed a bill for the express purpose of preventing any assertion of legal rights which would dismember the property in their charge, is it possible that, when they find this bill entertained and themselves appointed receivers, they will not feel themselves charged by the court with the duty of resisting all who would claim such rights? Such men, of all others, must be disqualified to hold the scales between the conflicting interests which the court must protect. Nor is there any practical reason for their selection. The receiver can employ them, as the corporation employed them, and thus get the benefit of their skill and experience.

It would seem that the justice of these propositions was plain, and they are abundantly sustained by high authority. It is at least clear that, in a matter of this supreme importance, there is no room for secrecy, and that nothing should be determined ex parte.

The court should preserve its judicial position; it should hear and then decide. It should not determine without hearing that the allegations in the bill are true, and make an appointment which cannot be recalled without embarrassment.

Yet, with scarcely an exception, whenever a great railway company has passed into the control of the court, the creditors have first learned through the newspapers that, with the knowledge of none but its immediate officers and through collusive proceedings in which they in fact represented both sides, they or some of them have been appointed receivers; that from that moment the court, in determining the complicated questions which must arise in such a receivership, is to see and hear with the eyes and ears of a party to the controversy. Managers, whose discharge by the stockholders was imminent, have thus been continued in control